Notice and Final Rule (effective December 12, 2000): OSC Rule - 52-501 - Financial Statements (Repealed by 51-801)

ONTARIO SECURITIES COMMISSION RULE 52-501
FINANCIAL STATEMENTS

TABLE OF CONTENTS

PARTTITLE

PART 1DEFINITION AND APPLICATION
1.1Definition
1.2Application

PART 2FINANCIAL STATEMENTS
2.1Annual Financial Statements
2.2Interim Financial Statements

PART 3TRANSITION
3.1Transition

PART 4EXEMPTION
4.1Exemption

ONTARIO SECURITIES COMMISSION RULE 52-501
FINANCIAL STATEMENTS

PART 1DEFINITIONS AND APPLICATION

1.1Definitions - In this Rule, "foreign issuer" means an issuer that is not incorporated or organized under the laws of Canada or a jurisdiction, unless

(a)voting securities carrying more than 50 percent of the votes for the election of directors are held of record directly or indirectly by residents of Canada, and

(b)any one or more of

(i)the majority of the senior officers or directors of the issuer are residents of Canada,

(ii)more than 50 percent of the assets of the issuer are located in Canada, or

(iii)the business of the issuer is administered principally in Canada.

1.2Application

(1)Except as otherwise provided in Ontario securities law, this Rule applies to all reporting issuers other than mutual funds.

(2)This Rule applies to

(a)annual financial statements for financial years of the issuer beginning on or after January 1, 2001; and

(b)interim financial statements for interim periods in financial years of the issuer beginning on or after January 1, 2001.


PART 2FINANCIAL STATEMENTS

2.1Annual Financial Statements

(1)The comparative financial statements required to be filed under section 78 of the Act shall include

(a)a balance sheet as at the end of the applicable period referred to in subsection 78(1) of the Act;

(b)an income statement for the applicable period referred to in subsection 78(1) of the Act;

(c)a statement of retained earnings for the applicable period referred to in subsection 78(1) of the Act; and

(d)a cash flow statement for the applicable period referred to in subsection 78(1) of the Act.

(2)The balance sheet referred to in paragraph (1)(a) shall distinguish at least the following items

1.Cash and cash equivalents.

2.Temporary investments.

3.Long term investments.

4.Accounts and notes receivable.

5.Investments accounted for using the equity method.

6.Inventories.

7.Property, plant and equipment.

8.Intangible assets.

9.Accounts payable.

10.Current interest bearing liabilities.

11.Long-term debt.

12.Minority interest.

13.Share capital.

14.Contributed surplus.

(3)Despite subsection (2), an item listed in subsection (2) need not be distinguished if the item represents less than five percent of the total assets as at the balance sheet date.

(4)Every financial statement required to be filed under section 78 of the Act shall be reviewed by the audit committee, if any, and approved by the board of directors of the reporting issuer and the approval shall be evidenced by the signatures of two directors authorized to evidence the approval.

2.2Interim Financial Statements

(1)The interim financial statements required to be filed under subsection 77(1) of the Act shall include

(a)a balance sheet as at the date to which the financial statements are prepared and a comparative balance sheet as at the end of the immediately preceding financial year;

(b)an income statement for the most recent financial year-to-date period for which the financial statements are prepared and comparative financial information for the corresponding period in the immediately preceding financial year;

(c)a statement of retained earnings for the most recent financial year-to-date period for which the financial statements are prepared and comparative financial information for the corresponding period in the immediately preceding financial year; and

(d)a cash flow statement for the most recent financial year-to-date period for which the financial statements are prepared and comparative financial information for the corresponding period in the immediately preceding financial year.

(2)In addition to the interim financial statements required to be filed under subsection 77(1) of the Act, an issuer shall file, within 60 days of the date to which it is made up,

(a)an income statement and cash flow statement for the three-month period ended on the date of the balance sheet required under paragraph (1)(a), other than the last three-month period in its financial year; and

(b)comparative financial information for the corresponding period in the preceding financial year.

(3)The financial statements required under subsection (1) and (2) shall include notes.

(4)The interim balance sheet referred to in paragraph (1)(a) shall distinguish at least the items listed in subsection 2.1(2).

(5)Despite subsection (4), an item in subsection 2.1(2) need not be distinguished if the item represents less than five percent of the total assets as at the interim balance sheet date.

(6)The board of directors shall review the financial statements referred to in subsection (1) and (2) prior to filing and delivery of the statements to securityholders.

(7)In fulfilling the requirement in subsection (6), the board of directors may delegate the review of thefinancial statements to an audit committee of the board.

(8)Subsection (6) does not apply to a foreign issuer.

(9)The income statement and cash flow statement required to be filed under subsection (2) shall be sent by the issuer at the same time and to the same securityholders as the financial statements referred to in subsection (1) are required to be sent.

(10)The interim financial statements required to be filed under subsection 77(1) of the Act and subsection (2) need not include an auditor's report.


PART 3TRANSITION

3.1Transition - Despite sections 2.1 and 2.2, an issuer is not required to provide comparative information in financial statements for the financial year, and for interim periods in the financial year, in which the issuer is first subject to this Rule if

(a)it is impracticable to present prior period information on a basis consistent with this Rule;

(b)the prior period information that is available is presented; and

(c)the fact that the prior period information has not been prepared in accordance with this Rule is disclosed.


PART 4EXEMPTION

4.1Exemption - The Director may grant an exemption to this Rule, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.

COMPANION POLICY 52-501CP TO
ONTARIO SECURITIES COMMISSION RULE 52-501
FINANCIAL STATEMENTS

PART 1 GENERAL

1.1 Introduction - The purpose of this Companion Policy is to provide guidance to assist reporting issuers in complying with their obligations under Rule 52-501.

1.2 Interrelationship with Canadian GAAP

(1) Reporting issuers are required to prepare their annual financial statements in accordance with both Canadian GAAP and the requirements of Rule 52-501. For example, if Canadian GAAP relating to preparation of annual financial statements requires the disclosure of an item on the face of the balance sheet and the item either is not listed in subsection 2.1(2) of Rule 52-501 or is listed in subsection 2.1(2) but represents less than five percent of total assets as at the balance sheet date, then the item would be required to be disclosed on the face of the balance sheet. Similarly, if Canadian GAAP does not specifically require an item to be presented on the face of the balance sheet but the item is listed in subsection 2.1(2) and represents five percent or more of total assets, the item would be required to be disclosed on the face of the balance sheet.

(2)Interim financial statements are also required to be prepared in accordance with both Canadian GAAP and the requirements of Rule 52-501. For example, Section 1751 Interim Financial Statements of the Handbook requires that the interim financial statements include, at a minimum: each of the headings and subtotals included in the most recent annual financial statements; the line items required by the Handbook sections regarding annual financial statements; and the specific disclosures required by Section 1751. Subsection 2.2(4) of Rule 52-501 requires the interim balance sheet to distinguish the items listed in subsection 2.1(2) other than items that represent less than five percent of total assets as at the balance sheet date. Issuers must ensure that interim financial statements comply with both Section 1751 of the Handbook and Rule 52-501.

1.3 Foreign Issuer - For the purposes of the definition of "foreign issuer", it is the Commission's view that, in determining the voting securities that are directly or indirectly held of record by residents of Canada, an issuer should

(a)include securities held of record by a broker, dealer, bank, trust company or nominee for any of them for the accounts of customers resident in Canada;

(b)count securities beneficially owned by residents of Canada as reported on reports of beneficial ownership; and

(c)assume that a customer is a resident of the jurisdiction or foreign jurisdiction in which the nominee has its principal place of business if, after reasonable inquiry, information regarding the jurisdiction or foreign jurisdiction of residence of the customer is unavailable.


1.4 Interrelationship with Rule 51-501 AIF and MD&A regarding Implementation - Rule 52-501 and Rule 51-501 AIF and MD&A do not necessarily apply for the first time to the same financial periods. Rule 52-501 applies to annual financial statements for financial years beginning on or after January 1, 2001 and to interim financial statements for interim periods in financial years beginning on or after January 1, 2001. Rule 51-501 AIF and MD&A applies to annual MD&A for financial years ending on or after January 1, 2001 and to interim MD&A for interim periods beginning on or after January 1, 2001. For example, if an issuer has a January 31 year end, it would file an AIF for the financial year ending January 31, 2001 but would not be required to comply with the annual financial statement requirements of Rule 52-501 until the financial year ending January 31, 2002. If an issuer filed an AIF for a financial year ending December 31, 2000, the issuer would file interim financial statements in accordance with Rule 52-501 and interim MD&A in accordance with Rule 51-501 commencing with the interim period beginning January 1, 2001.


PART 2 REVIEW BY BOARD OF DIRECTORS

2.1 Auditor Involvement with Interim Financial Statements - In the Commission's view, the board of directors of an issuer, in discharging its responsibilities for ensuring the reliability of interim financial statements, should consider engaging an external auditor to carry out a review of such financial statements.


PART 3 BALANCE SHEET

3.1 Balance Sheet Line Items - The balance sheet line item requirements in subsections 2.1(2) and 2.2(4) of Rule 52-501 establish a minimum level of balance sheet disclosure. An issuer should consider its industry sector, stage of development and transactions and determine whether additional items should be included in the balance sheet or the notes to provide information that is necessary for an investor's overall understanding of the issuer's financial position.

3.2 Line Item Disclosure - Section 2.1(2) of Rule 52-501 does not prescribe the order or format in which the items are to be presented. The descriptions and ordering of items should be adapted to create a clear balance sheet presentation thereby enhancing disclosure to investors of the financial position of the issuer.